Tuesday, May 28, 2013

Reportedly
it took only a few hours this morning, when Hill folks got back from
their Memorial Day holiday, for House GOP sources to send Senator
Bob Corker (R-Tenn) a message that the House wasn't interested in
working on any legislation which set up new federal housing
responsibilities, no matter what fate Corker proposes for Fannie and
Freddie. No comment on Corker's idea of nationalizing F&F's
financial obligations and adding a bazillion dollars to the national
debt.

Peter Wallison, he of GOP lineage, AEI
paycheck, and co-author with Ed Pinto of a subprime mortgage theory
shot down more then stunt men in a Sergio Leone western, decided last
week to jump all over resident hero, David Fiderer, when Fiderer
wrote in the American Banker—with copious detailed research—that
the AEI, Wallison and Pinto theory of Fannie Mae buying voluminous
amounts subprime mortgages in the 1990's was so much poppycock.

Fiderer's conclusions hardly were
unique, since the same specific rejections were produced by the
Federal Reserve, the President's Financial Inquiry Commission
Commission and dozens of top columnists and media, but Wallison wrote
to the American Banker anyway dumping on Fiderer's analysis.

I told Wallison he was substantively
off base when he blasted Fiderer's work and pointed out how many
times the AEI's arguments about Fannie buying tons of subprime in the
1990's have been publicly rebuked.

But those institutional refutations
haven't stopped Ed and Peter, with their Al Queda like zealotry, they
just keep repeating the same lies and hope the WSJ editors and other
acolytes will provide air cover for them.

I asked Peter--when the AEI and its
minions discuss F&F mortgage activities precipitating the 2008
financial meltdown-- why they never mention the causal effects of
Wall Street creating and selling worldwide almost a trillion dollars
in worthless subprime securities and synthetic CDOs. (Why is it hard
for the conservatives to admit the big GOP campaign contributors
made mistakes?)

Here's what Peter told me when I
questioned his anti-Fiderer efforts.

Bill: You’re full of misinformation because you
live in the left’s echo chamber. It’s time you guys stopped
saying that Ed Pinto’s characterization of subprime loans as those
under 660 FICO is silly, or a lie, or disproved, or some other
nonsense. You can’t get away with that if you’re communicating
with someone who is not your ideological bedfellow. The 660 dividing
line was established by the bank regulators in 1999, and in their
statement they said that it does not matter what other
characteristics a mortgage has, it is subprime if the FICO score is
less than 660. When you are ready to deal with facts rather than the
wild statements you, Fiderer and others throw around we’ll have a
real discussion.

Regards, Peter

Thank you, Peter (and Ed, the
AEI, and the WSJ editorial staff); once more I'll venture into the
your Valley, but I will fear no Evil--in this instance—because
my FICO truth makes me one of the toughest Mothers in the Valley.

Misrepresenting
FICO

First,
FICO scores are a credit measure created several years ago by the
Fair
Isaac Company,
ergo the acronym FICO. They are not linear, so a 625 score is a lower
and presumably a lot more damnign than a 660 score.

Contrary to
Peter's emailed allegations to me, I
doubt any major balance
sheet
lender anywhere relied
exclusively on FICO scores,
other than as one element of a lending decision. Fannie
and Freddie both expressly stated that hey did not rely on FICO
scores to make credit decisions.

Further in challenging
Peter/AEI, while bank regulators might have cogitated on a FICO 660
being a threshold, none of them ever followed through to make that
measurement an operative rule in the mortgage world, prohibiting
loans to those with lesser scores.

Since no federal regulator
ever promulgated such a binding regulation, I expect that millions
of loans—which never defaulted and were deemed viable--ere made to
people with credit scores below Peter's “thou shall not be below
660.”

Peter and Ed say they
are correct, but the following evidence suggests how FICO scores
were viewed in the everyday/real world of mortgage lending, as
opposed to Peter's and Ed's ivory tower AEI ideal..

Here's what others in the
credit and mortgage loan universe say about the AEI's 660 FICO score
being the “God above, Devil below “ demarcation line between good
and bad credit.

Entities
Defining a 620 FICO Score as the Dividing Line Between Prime and
Non-Prime Mortgages

Worth
repeating: FICO scores are not linear, so a 625 score is way below
AEI's 660 standard.

STILL
NOT CONVINCED and NEED A FEW MORE REFUTATIONS, TRY THESE:

§
Peter Wallison
himself: “There is no universally accepted definition of either
subprime or Alt-A loans, except that neither of them is considered a
prime loan. … The term ‘subprime,’ accordingly, generally
refers to the financial capabilities of the borrower, while Alt-A
loans generally refer to the quality of the loan terms.”[1]
(To say that a loan is subprime if it is not prime is a bit
tautological.)

§ Federal
Reserve staff: “There is no generally-accepted definition of prime
and subprime mortgages.”[2]§ Federal
Reserve staff: “A subprime mortgage is one made to a borrower with
a poor credit history (erg., a FICO score below 620) and/or with a
high leverage as measured by either the debt-to-income ratio or the
loan-to-value ratio).”[3]§ Federal
Reserve Bank of St. Louis: “A precise characterization of subprime
lending is elusive.”[4]§ GAO:
“There is no uniform definition across the lending industry for
what characterizes a loan as subprime or Alt-A.”http://www.gao.gov/new.items/d0878r.pdf
page 15.§ Federal
Reserve Board, in an official commentary, describes: “a somewhat
loosely defined segment known as the Alt-A market, the precise
boundaries of which are not clear.”[5]

§
Finally, as shown in the table in
the Appendix to this section on page 7, many sources (including a
colleague and frequent collaborator of PW at the AEI) regard a FICO
score of 620 rather than 660 as the dividing line between prime and
non-prime loans. In fact, a web site on credit scores shows
considerable more support for 620 rather than 660 as the
prime/non-prime boundary.[6]

Peter, you've wrote that I live in a left wing echo chamber, but
given how the AEI (you and Ed) and your propaganda are so heavily
dependent, and precariously positioned, on this “above 660 is good,
below 660 is bad” argument--with apologies to Matt Damon--how do
you respond to all these echo chamber “disagreeing apples”?

Worse for you—again,
despite your protestations--when your
theory was measured against Fannie Mae business in the 1990's---very, very, very few of
those loans you claimed were subprime failed, indeed, most succeeded
at mind boggling levels, meaning no losses. Bye-bye theory.

Your “Aha moment” bit
you in the behind, because throughout the 1990's and for the first
three or four years into this new century, Fannie's loan loss rate
was infinitesimal because they didn't enagge in what you and Ed insisted.

So, what
practical good then is your 660 FICO versus 620 assault on Fannie and
others?

You
suggest it was designed to prove Fannie failed to separate the
credit haves from the have nots, the good from the bad, the
trustworthy from the dross, the those we want from those we don't
want, but when applied to more than 15 years worth of Fannie
business, it looks like it only would have kept from home ownership
many responsible borrowers who met their Fannie financial
obligations.

You can and have shrilly proclaimed that a 660 FICO is the
mortgage market's good/bad tipping point. But where does that put
you, Ed, and AEI, if most in the mortgage finance world used 620 for
that standard?

Saturday, May 25, 2013

If The GOP Doesn't Want Uncle Sam in the Mortgage
Market,Apparently Sen. Bob Corker (R-Tenn) Didn't Get
The Memo

Unhappy Senate GOP sources leak provisions of
draft Corker Bill to transfer Fannie and Freddie liabilities to
Treasury and create new federal government re-insurer in their place
>

A
veteran mortgage analyst, declaring his information "comes
right from a dismayed Senate Republican source," told me
Sen. Bob Corker (R-Tenn), senior Banking Committee
Republican, is drafting a bill to replace Fannie and Freddie with a
new federal mortgage insurer mainly to serve mortgage origination
from the TBTF large commercial banks.

The
Corker proposal also would direct "all existing single-family
mortgage guaranty operations of each enterprise (F&F)
transferred to the United States Treasury.">Further,the source says Corker's proposal declares that, "The
full faith and credit of the United States is pledged to the payment
of all amounts which may be required to be paid under any guaranty
obligation assumed by the US Treasury pursuant to the transfer
above.">>In a nutshell the report says, Corker, a
conservative member of the Senate minority--which argues it wants
Uncle Sam out of the mortgage market— plans to disassemble Fannie
and Freddie, have Treasury put all of F&F's mortgage loan
liability on the federal budget and
pick up the tab for any mortgage losses the big banks incur under
Corker's new federal insurance/reinsurance arrangement.

What
was not reported tot he individual who contacted me is the time
frame for tearing down the old and constructing the new. >Does that sound to anyone like an infusion of private capital? If
accurate, it appears to me that Corker's new private capital
infusion has Uncle Sam's DNA all over it.

But,
I wish I was a big bank!

Wait until the Tea Party
gets hold of this news or the small community lenders, the
Homebuilders, the Realtors and anyone else who thinks the nation's
primary and secondary mortgage markets should
not be controlled by the big banks who would receive additional
federal subsidies.>

Is
Corker Betraying GOP Principles and Policy??

I
have no idea, somebody should ask him him or his staff.

Corker
might also be asked about all of those professed GOP skinflints?
What became of that Republican outrage over bailouts for the wealthy
Wall Street banks and investment banks?> If all of this
surprising info holds true and the wing nuts start saying “Aha”
to Corker, will he do a head fake, try and preempt the sputtering
right wing anger, and say, “This is nothing but a discussion
draft. My long term goal really is to..blah, blah, blah, blah, blah,
blah.”> Oh, yeah!!!

Let
me repeat, this is a report from an excellent source, hearing from
disgruntled GOP interests in the Senate, who claim Senator Corker
(R-Tenn), who has been talking for weeks with Democrats and other
Republicans proposing legislation to demolish Fannie and Freddie, is
near to finalizing his draft bill and expects to carve out a
significant role for the federal government in it.

Stay
tuned!!

(Anyone
reading the blog and having questions this matter, don’t call me since
everything I know is spelled out above. Check with the congressional
office mentioned and the lobbyists around town.)

But all reports are that he's a smart
guy and good guy (not all trade heads are). So with those two
qualities in mind, it was both ironic and sad that he made the case
for “more private capital in the mortgage market” at the expense
of hobbling of Fannie, Freddie, the FHA and ultimately ultimately
consumers.

The MBA once was hip joined with
Fannie and Freddie, as well as the FHA and its securitizer Ginnie
Mae. But then the group got greedy had and has conflicting
interests among big and small companies about surviving and making money.

A few years ago, the MBA overreached
and bought a new Washington headquarters within spitting distance of the White
House. But—most embarrassingly—had to unload it under financial
duress and become..oh perish the thought...a commercial renter!

They Only Are Mortgage
Companies

MBA's members are not commercial
banks—despite their love of the generic “bank” name-- they are
mortgage companies, which exclusively make mortgage loans, nothing
more, and sell every loan they make to some investor somewhere.

They made their historical mark, almost
75 years ago, in 1939, when they leaped to originate the newly
created Federal Housing Administration (FHA) 30 fixed rate,
government insured mortgages, created by Franklin Roosevelt in the
same legislation which gave bith to the original Fannie Mae as a
government agency mode.

The old Fannie Mae—little changed
until 1970-- bought those new loans (mostly from the mortgage
companies), replenishing lender capital to make additional
mortgages and held the mortgage loans in its government funded
portfolio.

Mortgage banking flourished, especially
after two and a half million servicemen and women returned after WWII and used
their GI benefits on FHA and VA loans—then sold to Fannie Mae--
since those were easy tickets to homeownership.

It hard to argue that the MBA and its
members owe their business lives to the federal government and
continue to thrive from it.

(Prior to that Fannie execution, the mortgage
companies would travel to New England selling their mortgages--with
the back up docs--to insurance companies whose cash flow needs
aligned with the monthly mortgage payments they bought from the
lenders.)

Stevens Decides to
Scorch Federal Supporters

Now David Stevens comes along, bemoans
that Fannie and Freddie are crowding out the ”private capital”
(presumably from those federally subsidized banks......think
about that descriptor?) and sending tons of money to the Treasury.

Except, David, who/what is bringing
that business to Fannie and Freddie...um commercial banks and their
mortgage banking subs, since the two mortgage investors can't
originate their own loans. Some lender, somewhere is making mortgage
loans with their own “private capital” and seeking F&F help
to securitize them.

Most mortgage bankers are subsidiaries
of large banks, having been vacuumed up by the depository
institutions, leaving a miniscule number of “independent mortgage
bankers/companies” in existence.

That's in part why the MBA is riven.

The MBA now parrots the big banks and
want less Fannie and Freddie and “more private capital,” as if
F&F somehow are stopping mortgage companies and their bank
parents from originating mortgage loans.

Twenty years ago, with F&F
flourishing, it was a foot dragging MBA which railed against
automated underwriting—because it squeezed cost from the
system—cost which the mortgage companies used to extract from
uninformed borrowers.

"Bright Line"

The MBA, for years, also argued for a
“bright line” separating Fannie and Freddie in their limited
secondary mortgage market space from the MBA members in the primary
market space, from which F&F were barred by law.

This absurd campaign, again about
money, was ludicrous because F&F never wanted or gave signals
that it was hot to originate mortgages. They had squadrons of
mortgage bankers doing it for them.

Mortgage loans require prioritization,
ie. turning individual loans into mortgage backed bonds to make easy
for investors to purchase and trade them. Creating those securities
is what Fannie and Freddie now do.

But
They Created and Sold Subprime, Unleashing Poison!!

Stevens calls for a common or single
securities system and for using the “private sector’s systems
development” expertise to shape the common platform, not
exclusively using Fannie and Freddie technical skills.

David, most mortgage investors can
remember back 7 or so years, which was the last bout of big time
private label mortgage securitization (meaning banks skipping F&F
involvement)--that was called the subprime era—and many
investors still bear the scars and losses from broken bank promises,
bank deceit and misrepresentation.

Fix that David, as in “Physician heal....”, and your other arguments might get traction.

But thundering against the federal
government when virtually all of your industry's revenue comes from
Fannie, Freddie, and the Federal Housing Administration robs you of
credibility.

Also, blaming F&F for raising their
G-fees is silly, when you know all of those decisions are made by
their regulator or the US Treasury. If you don't realize that, maybe
the MBA settled short on exec talent?

But the hoariest (word chosen
carefully) explanation of Stevens rant is his bitching about the
element which allowed his industry to thrive--federal housing
support—he calls for reducing Uncle Sam's presence (it's all
mortgage banker code) so the big banks and their commercial kids can
charge consumers more.

What chutzpah!

Despite his talk Stevens
displays a disregard for the home buying public, who are his members'
customers.

The standardization, efficiency,
transparency, and accessibility—which still exists in
Fannie/Freddie operations—isn't there when big banks do their own
thing, nor is the competitive pricing that benefits borrowers.

The good news is that most smart
mortgage market observers see through the Stevens charade and realize
that the MBA is just a version of “Big Bank Lite.”

The bad news for Mr. Stevens and the
MBA is that some of his membership might not like where he wants to
lead his group and could seek a more useful organization elsewhere.

The
Hebrew Hammer Goes “Yard,” Twice This Past Week

In
baseball parlance, “going yard,” means hammering a home run, that most
glorious of batting efforts.

Last
Friday, a more button downed Fiderer work appeared in the American
Banker. This was a three decade clinical review of Fannie Mae
mortgage lending, about which more lies have been than Wilt
Chamberlain’s sex life. (A refresher: Wilt reportedly slept with
more than 20,000 different women).

Fiderer
cites Fannie lending data for three decades and sources it, pointing
out who out there has misrepresenting the data to whip up political
anger and why that spurious effort should be ignored unless you
regularly wear a tiny tri-corner hat or are in the Tea Party.

I received a bank notice and, promptly,
two days later a check, from the large domestic bank on the east
coast, which includes “bank” and “America” in its corporate
title.

That bank—just like in the game
Monopoly—had ”made
an error in my favor” card, when it screwed up my refi some time
ago (since refied, again, with another bank, which already has sold
my loan to another servicer. And I would be the beneficiary of some
of that bank's cash.

Thank you Mr. Bank and the federal
government for making that happen.

(Bought some milk, bagels, and fruit,
with the proceeds from that “error.”)

Bill's
Book Corner

I want to tout two new books to you,
written by people I like greatly.

John
Buckley

Veteran novelist John Buckley and I
bonded at Fannie Mae, years ago, when he ran Communications and I
oversaw Government Relations. John's latest book is “The Geography
Lesson.”

“The Geography
Lesson” tells the story of a botched 1968 expedition in
which a National Geographic writer and photographer discover a
magnificent Anasazi ruin in Southern Utah. Yet between the moment
they make their discovery and their return some weeks later with U.S.
government officials, the site is ransacked, and all its most
valuable artifacts looted, creating a Washington kerfuffle that
brings shame on the National Geographic Society.

Now, flash forward 40 years when Tim
Prescott sees an artifact he last saw 4 decades previously and...you
are into “The Geography Lesson.”

Anthony
Marra

Anthony “Hal”
Marra (Jr.), not only is the son of my neighbor and former Fannie Mae
colleagues (Tony Sr.) and his wife Mary, but I also was Hal’s street hockey coach,
clearly seeing in his rugged play a talented young man headed for the
Iowa Writers Workshop and with a well received and hot selling first
book, likely—as I assured myself--because I took him under my wing
and showed him how to throw a hip check on a tennis court street
hockey pitch!

“A Constellation of Vital Phenomena”
is a love story set in war ravaged Chechnya and is a deep tome and riveting for such a yougn author.

Hal's book, just
out, already has earned excellent reviews in the Washington Post and
New York Times, with the latter calling him a “young Joseph
Heller.” (I didn’t know Heller played street hockey.)

My wife and about
225 others showed up last week to DC's Politics and Prose book
store to listen Hal's discuss his book and to buy copies of “A
Constellation of Vital Phenomena.”

Monday, May 13, 2013

I received the email below from a
financially/economically bright , colorful, and creative
friend, who shipped it following Fannie's announcement last week that it will
send $59.5 Billion in cash to the Treasury.

“If one adds fairly
minimum amounts for the three quarters of the rest of the year,
(Fannie will send Treasury) north of $75 billion for the year. In
fact, (Fannie now is) paying so much to Treasury in dividends that
it will push back the date that the whole country hits the debt
ceiling and Obama has to lock horns with congressional Republicans
again.”

“Of course, the way that
Henry Paulson arranged the deal in 2008, it's like being in hock to
the Mafia; (Fannie) can pay and pay but
never get free.”

“Or,
as the song “Hotel California” goes”:

Last thing I
remember, I was

Running for
the door

I had to find
the passage back

To the place
I was before

"Relax,
" said the night man,

"We are
programmed to receive.

You can
check-out any time you like,

But you can
never leave! "

That's a Lot of Money,
Jeb, What Should We Do Now??

Fannie/Freddie,
each reporting record earnings this past week, have created quite a
buzz among those who understand the stakes and are aware that some
Congress heavyweights—notably the Chairman of the House Financial
Services Committee, Jeb Hensarling (R-Tex)--see the two as twin
cancers requiring legislative eradication.
And Jeb controls the agenda in the House committee.

It
could be that Hensarling understands all too well that the income F&F
are generating—and projecting--could influence his peers and
colleagues to think Fannie and Freddie would be helpful to the nation
(remember those people, guys?) and a more productive way to deal
with Fannie Mae and Freddie Mac exists rather then Hensarling's
desired evisceration.

For
those who despise Fannie because they somehow manifest the federal
government—and got bailed out by the same--or that the two
encouraged homeownership back in the day (and God forbid once –at
least at Fannie--had prominent Democrats working there), your
complaints could become transitory.

A
closer review shows that Fannie’s and Freddie's “mortgage sins”
were the same that every major “PRIVATE” financial
institution in the nation committed (with each benefiting from their
own federal subsidies).

F&F
bought Wall Street private label subprime (PLS) mortgage
securities--not because they were encouraged by the federal
government to make mortgage funds money available to low, moderate
and middle income Americans—but because they faced revenue and
market share losses and hoped to recoup.

Opponents
like to conflate those separate matters because they want to blur the
systemic benefits that the “old” Fannie and Freddie brought to
the nation and, in some sense, still do.

Lots of Good News Embedded in
F&F Earnings

Let
me suggest to those on the Hill, not already wedded to the Tea Party
ideology, the good news-- despite the reactionary chants from
Hensarling and others—is that you have time to digest just what
these positive earnings represent. Maybe look closely at why Bush
Treasury Secretary Hank Paulson structured his F&F “take over
deal” the way he did, so Fannie and Freddie never would appear to
pay back the governmental (unlike GM, AIG and others). And, also,
while the Federal Housing Finance Agency (FHFA), F&F's current
regulator is too hands-on, it successfully has made it impossible
for the two to finance any form of subprime mortgage, which deals
with legitimate concerns over future financial taxpayer risk.

As my
lyrical friend notes above--and I will add the Freddie perspective--
between the two of them, conservatively, Fannie could pay back
an additional $25-$35 Billion this year and Freddie $20 to $25
Billion, with an emphasis on conservative.

The revenue opportunities go on.

I am
not counting any Deferred Tax Account (DTA) Freddie could employ, as
Fannie just did, which could send even more to the taxpayers or
future financial damages received by both from several active
lawsuits they have against major banks for fraudulent bad mortgage
loan deliveries.

A
additional F&F revenue wild card is—as large banks
already have begun to do—Fannie and Freddie could reduce their loan
loss reserves and convert them to bottom line income, increasing
their profitability and expand what they plan to send the big money
house at the corner of Pennsylvania Avenue and 15th
Street.

Someone
suggested that F&F—at current loss rates—already have 10 to 12 years
worth of loss reserves on their books, which their regulator soon
will have to agree to allow them to move down and then give it to the
Treasury.

The Full Financial
Return to Treasury Could Be Real Soon!

Play
with those variables and, in any sense of the “paying back”
concept, Fannie and Freddie could pay back the government in two
years or less and be financially viable and a systemic asset to the
nation.

Are
these the types of institutions a majority in Congress should vote
to disassemble or otherwise destroy because in the past they were
cheerleaders for homeownership, as both parties demanded, or
initially spawned by the Roosevelt Administration?

And,
finally, what is the mortgage investing substitute?

Rampantly
speculate on a Fannie/Freddie successor, since that's what Washington
has been doing since 2008--when Paulson first bollixed the two--and
explain why that mortgage model would be an improvement.

I've
made my case against the big banks exclusively owning the nation's
mortgage finance systems and I don't need to repeat it.

The
big 7 or 8 Too Big Too Fail Banks (see link below to Barry Ritholz column) are not reliable
partners to mortgage seeking consumers, as least when they don't have
a Fannie or Freddie on which to layoff their mortgage risks.

I've
also written often, I think the large banks enjoy having F&F in
their current mortgage investor roles, because it makes it easier for
banks to manage their mortgage business. But the big guys are
“commercial banks” and recent reports suggest they are ramped up
to do more of that needed lending and bless them for it....if it is
true. I am betting keeping some form of Fannie and Freddie in place
helps the big banks.

Use The Time Wisely to
Consider and Understand

So,
policy makers, their staffs, think tanks, media, and all who propound
politically on new designs for the nation's mortgage finance system,
take a timeout offered by the Fannie/Freddie earnings flow and try
and understand and ask why many feel need dramatic changes when
statutory and regulatory changes may already have created most of the
future market structure the nation needs.

Two
recent articles, one in Barron's, and one in “The Hill”
discussing matters in today's blog are worth reading.

Again,
nobody is suggesting that F&F, if used in some future capacity,
never be altered. I suggest that people understand how these very
productive institutions achieved success in the past and to consider, with several operational regulatory changes already made,
how they can do it again.

Congress
needs that review before they get swayed by those in power who,
thoughtlessly, would pitch Fannie and Freddie out with the bath
water.

(BTW.
Kudos to my old friend—not the author of the opening email—Rob
Zimmer, a former Fannie colleague before going to be one of Freddie's
top lobbyists, who now has his own financial government relations
practice. Someone called my attention to my Feb. 26, 2011 blog, in
which Rob essentially predicted the F&F turnaround, two years
ago, which the world recently has seen.)

Tuesday, May 7, 2013

Ed Pinto of the
American Enterprise Institute (AEI) has been in the mortgage news a
lot recently (when isn't he?). Recently, he worried that demands to
loosen underwriting standards on federally related montages will lead
to a return of major housing finance problems, additional government
losses, and God forbid, possible resurrection of Fannie Mae and
Freddie Mac, the two mortgage entities which suddenly have become
valuable national and Treasury cash cows.

Ed has a huge
audience and a well honed PR machine, which includes the AEI's
communications apparatus and his own blog, so recently I politely
asked him—in an email—if he would consider putting some of my
prose on the AEI blog, just to give his posse another perspective.

I haven’t heard
back from Ed, but I am assuming that means his answer is “no.”

If Ed
had accepted my offer, here is much of what I would tell his AEI
audience (and him).

Maloni to Ed and
Peter's AEI audience

If the AEI, Ed Pinto and Peter
Wallison succeed in convincing Congress to excise the federal
government totally from the nation's mortgage finance system. I am
not as confident as they are that the surviving mortgage market would be
as fair, efficient, and accessible to most Americans as is the
current one.

Let's be honest, if there were no
Fannie Mae, Freddie Mac, and FHA, the mortgage market would be
controlled by the nation's largest banks and their investment banking
subsidiaries. There might be a few other survivors but none of any
size or clout to compete with the big six or seven bank holding
companies.

Great for the banks, but bad for
consumers.

When left to their own devices,
large banks lie, cheat, bully, and obfuscate. For proof, see $10.5
billion of bank regulatory fines paid in 2012; $9 billion in
mortgage settlements made with Fannie and Freddie, with much more of
the latter still pending in 2013; none of latter includes New York
state now taking out after two large banks for mortgage misfeasance.

That’s a ton of bank law
breaking and fine paying in a fairly compressed period. And most
seasoned observers understand that's just leakage from dodgy
operations.

If you can remember back less than 10
years, you can get a glimpse of what the Pinto-Wallison ideal
future mortgage lending machine looks like.

That was when most large
banks--largely left to their own devices by the “hear no evil/see
no evil” George W. Bush financial regulatory brigade--ignored sound
but exacting Fannie and Freddie automated underwriting systems, and
originated mortgage loans through bank-owned brokerage systems, which
employed lackluster bank underwriting standards, and produced
nearly a trillion dollars of worthless private label mortgage backed
securities” (PLS) and synthetic derivatives based on the same PLS.

The banks and their
minions—attaching inflated ratings from overworked and conflicted
rating agencies-- sold those worthless mortgage backed bonds all over
the world, infecting mortgage investors in every nation.

That simply is why the 2008
financial debacle was international, as a majority of those minimally
underwritten mortgages soon failed producing record losses across the
globe.

Now, Ed and Peter have told their
audiences that Fannie and Freddie failures caused the 2008 financial
Armageddon, a tale rejected by many credible sources in and out of
DC who showed that F&F's loans did not fail them, but their Wall
Street PLS investment did.

New managers at Fannie (and
others at Freddie)--beginning in 2005—rashly sought to recapture
“lost” market share and earnings by putting copious amounts of
“private label” mortgage backed securities in their portfolios,
composed of mortgage loans their own underwriter systems wouldn't
approve.

Ed, Peter, and I will disagree,
but what my adversaries can't rebut or ignore—as they try and foist
blame on the former GSEs--is that Fannie Mae mortgages (they seem to
enjoy railing at Fannie more than Freddie) and mbs, processed through
its proprietary underwriting system,
enjoyed minimal loan losses, measured in the fractions of a
percentage point, from 1990 through 2005.

All of that lending data is
public and filed with Fannie's safety and soundness regulator, HUD,
the SEC, the Fed, Wall Street investors, and appropriate
congressional committees.

I need to repeat for the
“government is evil and banks are great” AEI audience, that
sophisticated institutional mortgage investors worldwide heavily
bought PLS subprime, underwritten, created, and sold by those same
banks to which Ed and Peter now want to turn over the entire US
mortgage business.

Fannie Mae and Freddie Mac bought
the PLS poison, too, with those Wall Street bonds failing up to 10
greater than Fannie's and Freddie's securities of that same period.

Come on Ed and Peter, use your
facile minds to conjure a more acceptable alternative than banks only
running the US mortgage market.

Alas, obviously,
Ed didn't print my mini-tome, above. Maybe, sometime he will relent
and let me offer his readers a different point of view.

Until he does, it's your loss AEI.

Common Lending Platform

Fannie's
and Freddie's regulator, the Federal Housing Finance Agency (FHFA)
has been beavering away on to require to the two entities to give up
years of proprietary data, join and produce a common underwriting
platform.

I
suspect that some F&F officials believe their own system gives
them an edge and don't want the other guy to have what they have or
know what they know.

But
FHFA, either with an eye to merging the two (an idea which may not
warm the cockles of whomever succeeds Ed DeMarco, assuming the Senate
approves any Democrat) might be missing out on a wonderful
opportunity if they pursue this blending project.

Well,
here is a Maloni suggestion for FHFA that could save most buyers some
time and $500 or more, earning your agency some much needed
goodwill!

To
the common platform with property information, FHFA is looking to
integrate all sorts of survey and buyer data.

This
new platform would have detailed information on a huge percentage of
all existing loans in the nation.

Given
that technology can massage/manipulate data and
produce very exact results, why couldn't FHFA urge F&F to use
that common mortgage finance data--which likely comprises
“comparables” from virtually every US neighborhood--and offer
consumers a bonafide house appraisal via a F&F seller servicer
for $50 or so.

That's
a lot cheaper than what borrowers pay now and leaves families with
more for a down payment, closing costs, or to pay bills.

There are probably additional overpriced homeownership products/services which constant review of fresh large data stores could uncover.

I am
going to duck my head before the appraisers (and the MI's?) start throwing brick
bats at me.

Maybe
Mel Watt will like it, along with mortgage principal reduction, too, he could make himself a star.

Thursday, May 2, 2013

Heading up the Federal Housing Finance Agency (FHFA) is not a
cakewalk, it's not a sinecure, it's not controversy-light (just the
opposite).

Yes, you are a bright guy, head of the Congressional Black
Caucus and you worked on Dodd-Frank, plus sat in on about two million
(boring) hearings about financial services and mortgage finance
matters, but—unless I am gravely mistaken and you are the rare
Congressman who knows and understands securities and mortgage
matters--none of your prior experiences will ready you for being the
titular head of the agency which oversees Fannie and Freddie.

Forget your industry
“friends,” people whom you felt over the years with an open ear
and votes in the Financial Services Committee and the House; they are
not your allies any more.

How about that ringing endorsement the
Mortgage Bankers Association just gave you? See it? Oh hard to find
in David Stevens BS rhetoric wasn't it? It wasn't even “faint
praise” and this is a guy who once was an Obama appointee. How
often did MBA lobbyists come to you for help?

Remind your fellow CBC members of the
MBA's actions.

(BTW, contrast that with the way the
NAR came out for you right away and upfront. The Realtors didn't
cavil or hedge their bets. If you get the job, remember them and the
MBA.)

But that's the way of this town.

Thanks, But No Thanks BO

Tell the President, "Thanks but
no thanks."

Nobody with your experience
should sign up for this amount of grief and aggravation,
unless you are being paid seven figures and given a cadre of
knowledgeable and loyal assistants to help you carry the load, which you are not.

I know the Obama folks are telling
you “piece of cake,” but Capitol Hill types already betting you don't have the 60 votes. They're counting noses and coming up short of GOP Senators
who might buck their party vote and for you.”

I think I know why you want the job, I
worked 11 years on Capitol Hill for a senior Democrat on the House
Banking Committee (what it was called then), who retired after
20 years because the job got repetitive, boring, too much ass kissing
and fund raising. And he was in the majority—a major subcommittee
Chair--and had every reason to believe the D's would stay in control,
which they did for another dozen years.

After a while, that work is tedious,
filled with righteous assholes everywhere. The job's
public service gilt quickly wears off s off.

Running the regulatory agency which
oversees Fannie and Freddie probably seems to you like a good and
easy job.

It isn't.

Bloody and Venomous F&F
History

The history—which cannot be
avoided—and you inherit is bloody, ugly, and filled with emotional partisan back
alley fights, and extends to the media and business and low income
groups today. The House R's don't even mask their contempt, which is
based more on Tea Party reasoning than knowledge.

I heard you say that most everyone
wants to wind down F&F and bring in more “private capital.”

Well the Republicans do, but there is
no such thing—as you should know—since those big banks get as
many explicit and implicit federal benefits as did Fannie and
Freddie. So don’t kid yourself.

As I've written, copiously, the banks
don't want the job, unless you pay them to do it by guaranteeing the
losses on failed mortgage back securities they issue.

I know you have big banks in North
Carolina, but don't trust them, either (if it is not too late). By
now, after 20 years, you should know what banks are about and it
isn't consumers or even the voters in your district where the banks
live.

It's money! And, for many years, all
that drove the big banks and their F&F opposition was getting
their hands of the mortgage giants' revenues.

If you have to learn on the job,
assuming enough GOP Senators get bought off, you are going to
encounter issues where everyone seems right or everyone seems wrong
and your instincts tell you not to rely on FHFA people because you
don't understand their personal agendas, which most of them have.

FHFA's Work Force

A lot of “evil critters” burrowed
into the FHFA policy woodwork and protected themselves with a civil
service prophylactic and you can't get rid of them. And I won't even
hazard a guess at their IG's real agenda, except that eh wants a
gaggle of more lawyers to investigate his own agency.

By many reports, although not on every
issue, Ed DeMarco earned the respect of Fannie/Freddie officials as
well as the Home Loan Banks execs, those orphans are yours, too.

The Admin truly dislikes DeMarco, ergo
your appointment. But, he has a civil service right to return to the
agency, somewhere.

Suggest to your Admin friends that they
make Ed an offer he can't refuse, Ambassador to France or head of
some national security agency, some place—other than FHFA--where
he really wants to be.

Send Ed to Camp,
Somewhere!

Having DeMarco rejoin FHFA invites
trouble and confusion. People on the Hill calling him not you,
generating odd staff alliances, people checking with him before
carrying our your plans, poor communications and disarray (if not
slow walking “your” agenda).

You think your House GOP “colleagues”
on Financial Services—led by Jeb Hensarling (R-Tex)--

are horse's exteriors, now, wait until
you testify before them?

Temporarily, you can hide your unfamiliarity on
substantive issues and history for a few questions and refer back to
your prepared statement, but it soon will catch up to you and if you
come up short you'll feel embarrassed and angry. And, as in
professional sports, your opponents will go for your injured and
weak spots.

But, you soon will be responsible for
trying to explain Fannie/Freddie/OFHEO/FHFA history which has been so
distorted by political opportunism and filled with fear and mistrust,
that you might mutter about the most expedient option –which might
be the worst one-- entertain dissolving the two entities.

Then, immediately, your friends on the
Left weigh in and you begin to hear from the housing industry
groups who believe in what Fannie and Freddie do and don't think the
large commercial banks can replace them.

Understand What the WH
Really Wants, If It Knows

Near term, the Obama Administration
doesn't want F&F to go away (let Hillary worry about that),
because the two are poised to feed billions (as much as $300 B or
more, over the next four years directly to the US Treasury and
provide the Obama Administration with greater revenues and
added resources to fight congressional budget fights.

Whatever clear and specific orders from
President Obama (yes, FHFA is an “independent agency, but.....),
you'll have to deal with Senate Republicans—who deeply supported Ed
DeMarco and can gum up any legislative action or regulatory
proposals, they chose.

Do you think your former GOP colleagues
in the House, whom you have experienced up close and personal, can be
part of any rational process to utilize Fannie and Freddie in a
constructive manner?

I am sure you look forward to this
challenge, but this new job—after all of the negative noise which
already has started—might be one you'll want to leave or could make
you unhappy and someone who needs stomach remedies daily.

Yay, Mel!!

BTW, if you really said to Ralph Nader
what has been reported in the press, in his meeting with the CBC, God
bless you, Mel Watt.
Nader's arrogant egomaniac run for the Presidency in 2000 brought the
world George W. Bush.

One last thing, in a bit of self
promotion, read as many of my blogs from the past four years as you
can.

They contain more political and mortgage
industry truth and value than you will find in any WH briefing book.

Remember the post-2004 Fannie--after
Frank Raines and Tim Howard were forced out by political hacks
masquerading as your FHFA predecessors and different GOP blessed
Fannie officials took charge—made huge subprime mortgage
acquisition mistakes, but those errors didn’t happen when Raines
ran the company, although many Fannie opponents will try and falsely
conflate them.

Find out the truth for yourself.
Understanding our mortgage finance history is crucial to plotting the
nation’s future of mortgage finance system.